Tag: Apple TV

Business

Apple and Major League Soccer

by MQDuong1 Comment on Apple and Major League Soccer

Yesterday, Apple and Major League Soccer (MLS) announced a deal that would make the Apple TV app the home of all MLS games globally in the next 10 years, starting in 2023. Fans will be able to stream all MLS games, with no blackout dates, through a subscription service only available on the Apple TV App. The League has not yet announced the details of said subscription, but are expected to do so in the coming months. Apple said the subscription would also feature highlights, replays, analyses and other original programming. Furthermore, the partnership will also seek to enhance coverage of MLS teams in Apple News and fans can watch highlights right from the News App.

Subscribers of Apple TV+, which is Apple’s own streaming service, can watch a few games at no additional cost. A limited number of games will be available for free, even to non-subscribers of Apple TV+. MLS season ticket holders will automatically receive a complimentary subscription to the MLS streaming service as an additional perk.

The two parties didn’t disclose the value of this deal, but folks familiar with the matter said that it’s worth at least $2.5 billion in its entirety, approximately $250 million a year. The current deal with ESPN+ is worth $90 million and will expire after this year. It was reported that MLS was hoping to make $300 million in annual revenue due to increasing viewership and popularity. Apart from this deal with Apple, MLS is also talking to a few cable companies over the rights to broadcast some games on linear TV.

Below is what each party had to say about this partnership:

For the first time in the history of sports, fans will be able to access everything from a major professional sports league in one place. It’s a dream come true for MLS fans, soccer fans, and anyone who loves sports. No fragmentation, no frustration — just the flexibility to sign up for one convenient service that gives you everything MLS, anywhere and anytime you want to watch. We can’t wait to make it easy for even more people to fall in love with MLS and root for their favorite club.”

Eddy Cue, Apple’s senior vice president of Services

Apple is the perfect partner to further accelerate the growth of MLS and deepen the connection between our clubs and their fans. Given Apple’s ability to create a best-in-class user experience and to reach fans everywhere, it’ll be incredibly easy to enjoy MLS matches anywhere, whether you’re a super fan or casual viewer.”

Don Garber, MLS’s commissioner

Why MLS picked Apple?

In my opinion, it’s about reach and accessibility. A unique part of this deal is that Apple secured the streaming rights globally, not just within the US; which is very different from the usual practice of rights being given over select geographical areas. Apple is one of, if not, the most global and recognizable brands in the world. Its Apple TV app is available on many types of devices, not just those that run on Apple operating systems. By working with Apple, MLS has a partner that can bring the game to the global audience instantly. There is no need for MLS to set up its streaming service. It’s not an easy task, especially for a global audience. With this deal, MLS is responsible for generating content and Apple will take care of the distribution. Moreover, the Apple TV app is native on Apple devices and doesn’t require any more installation. Fans can just head to the app and subscribe to the MLS service; which the Commissioner already alluded to in his remark.

The second reason is reach. Everything Apple does is widely covered and followed. This blog entry is one example. Apple can use its massive following and Marketing expertise to increase the awareness of MLS and help the League become more global. I have no doubt that we’ll see more ads from Apple about this deal, more mentions during events & earning calls, as well as more articles from news outlets, fans and bloggers. From the League perspective, instead of running Marketing campaigns in each part of the world, either by itself or partnering with an agency, I imagine that leveraging Apple is easier and more effective.

Why Apple partnered with MLS?

I find this comment from Don Garber, the Commissioner of MLS, very interesting

This is a minimum guarantee. It’s not a rights fee,” Garber said of the non-traditional deal. “…So if we exceed the minimum guarantee, then we share in the upside in that guarantee. If we’re able to sell our linear rights for what we hope and expect to sell them for, then we would even exceed our expectations.

Source: Tennessean

The new MLS subscription service is only available through the Apple TV app. Hence, Apple will be the one collecting the subscription dollars upfront and grow its Services revenue, at least on the surface. Based on the comment from the Commissioner, I figure no matter how much revenue the MLS streaming service brings in, Apple will pay the League at least $250 million a year. Past that figure, the tech giant will be able to take a share of the upside. It’s clear that this arrangement will do two things: 1/ Apple has something exclusive to sell to its customers; 2/ MLS will have a partner incentivized to promote the League globally as much as possible. With a lot of cash and 73% in Services’ gross margin, I think Apple can afford the $250 million figure promised to MLS.

If an MLS subscription costs $100/year or less than $10/month, Apple will need at least 2.5 million subscribers around the world for it to actually make any money from selling the service itself. Given the current awareness of MLS, especially to countries outside the US, is 2.5 million subscribers an attainable threshold? Unlikely in my opinion, but over a long term, who knows? The financial success of this partnership for Apple hinges on the future popularity of MLS. There are a couple of factors that may come in handy:

The first is that the World Cup 2026 will be hosted by Canada, the US and Mexico. As the world’s biggest soccer event, the World Cup will undoubtedly raise the awareness of soccer as a sport and of MLS. Currently having 28 teams, the League will add one more next year and plan to eventually feature 32 teams in the near future. The more local teams there are, the more interest such teams will generate among communities.

The second factor is the arrival of superstars who make their names in Europe and have massive global following. We already saw household names join the MLS in the past, including David Beckham, Thierry Henry, Zlatan Ibrahimovic, Wayne Rooney, Frank Lampard, Steven Gerrard and David Villa. Recently, Giorgio Chiellini, a popular Italian veteran, signed a deal with LAFC. But MLS would rise to a whole new level if it could acquire superstars such as Messi or Suarez. These players did it all in Europe and are already rumored to play in the US soon due to the media & business landscape as well as the Latino fanbase in the country. The arrival of legends such as Messi would be an instant boost to the MLS and its streaming service.

Apple wants to keep existing customers loyal and appeal to new ones. Sports are a great way to consumers’ heart and Apple seems to agree. Before the partnership with MLS, it struck a deal with Major League Baseball to broadcast games on Friday nights. There were reports that claimed Apple already secured rights to NFL games on Sunday nights. All this sports content will enrich the Apple digital ecosystem and help the company make more money. Two possibilities that I can think of:

  • Apple TV+ is natively available on Apple devices through the Apple TV app. Android users can also access the streaming service, but only through browsers. That’s inconvenient. Great sports content on Apple TV+ can give a nudge to on-the-fence Android users to switch to Apple devices. Whatever money the company lost on this front can be made up by higher margin services (Apple Care, Ads, iCloud, payments, etc..) and slightly more expensive devices
  • At $4.99/month, Apple TV+ is one of the cheapest options on the market. With more games in the library now, Apple can make a case to raise the subscription price. Even a $1 increase could lead to millions more in revenue

From my perspective, this is a good partnership for both parties, more so for MLS than Apple, given its current level of popularity globally. But Apple is known for its patience and long-term planning. The company must have a plan in mind and I am curious to learn more about it.

Business

Mixed Feelings from Netflix’s Earnings Report

by MQDuongLeave a Comment on Mixed Feelings from Netflix’s Earnings Report

Netflix released its earnings yesterday. There are causes for optimism and concern from what I have seen.

Important metrics improved YoY significantly

This quarter, Netflix added 517,000 domestic paid subscribers and more than 6.2 million international paid members, bringing the total subscriber count domestically and internationally to more than 60.6 million and 97.7 million approximately.

Contribution margin for domestic and international streaming is 41% and 20% respectively, resulting in the margin for streaming to be around 30%. Contribution margin of Domestic DVD is around 61%. Contribution margin represents what is left of revenue after all the variable costs to pay for fixed costs and to generate profit.

On a year over year basis, revenue, operating income and paid memberships saw remarkable growth for a company this size

Cause for concerns

Even though domestic paid memberships increased, Netflix missed its own expectation by almost 300,000, making it the second consecutive quarter that it did so. The company blamed the miss on the higher pricing elasticity than expected

That’s really on the back of the price increase. There is a little more sensitivity. We’re starting to see the – a little touch of that. What we have to do is just really focus on the service quality, make us must-have. I mean we’re incredibly low priced compared to cable. We’re winning more and more viewings. And we think we have a lot of room there.

But this year, that’s what’s hit us. And we’ll just stay focused on just providing amazing value to our members in the U.S. And I think that gives us a real shot at continuing to grow net — long-term net adds on an annual basis. But we’re going to be a little cautious on that guidance and feel our way through here.

CEO – Reed Hasting in Earnings Call (Per Seeking Alpha)

I saw a sentiment floating around on Twitter a while back that argued that Apple TV+ and Disney+ aren’t really competitors to Netflix. I mean, to some extent, they may differ a bit from Netflix, but if we want to talk about competing for viewers’ attention, time and disposable income, how can they not be? Sure, boats move different from trains, but if patrons can choose either to go from point A to point B, how can they not compete with each other? Now Reed Hasting admitted the challenge from other streamers, especially Disney+

From when we began in streaming, Hulu and YouTube and Amazon Prime back in 2007, 2008, we’re all in the market. All 4 of us have been competing heavily, including with linear TV for the last 12 years. So fundamentally, there’s not a big change here. It is interesting that we see both Apple and Disney launching basically in the same week after 12 years of not being in the market. And I was being a little playful with a whole new world in the sense of the drama of it coming. But fundamentally, it’s more of the same, and Disney is going to be a great competitor. Apple is just beginning, but they’ll probably have some great shows, too.

But again, all of us are competing with linear TV. We’re all relatively small to linear TV. So just like in the letter we put about the multiple cable networks over the last 30 years not really competing with each other fundamentally but competing with broadcast, I think it’s the same kind of dynamic here.

Source: Seeking Alpha

Chief Product Officer Gregory Peters made an important point below

I would say our job and then what we think our pricing for a long-term perspective is continue to take the revenue that we have that our subscribers give us every month, judiciously and smartly invest it into increasing variety and diversity of content where we really want to be best-in-class across every single genre.

And if we do that and we’re successful in making those investments smartly, we’ll be able to continue to deliver more value to our members. And that really will enable us to, from time to time, ask for more revenues so that we can continue that virtuous cycle going

Source: Seeking Alpha

Quite an important “if” condition there. In short, Netflix borrows capital to invest in content to the tune of billions of dollars every year and hopes that their subscriber base growth and revenue will keep enabling them to do so. In essence, every streamer will do that. Every single one of them needs to churn out quality content to convince viewers to choose their service. Failure to produce quality content to justify expensive investments will be costly for these streamers.

For Netflix, the stakes seem to higher. Other competitors have additional revenue streams apart from their streaming service. Netflix essentially relies on their subscription revenue. As this quarter shows, the price elasticity already has some negative effect, and it’s BEFORE other heavy-marketed competitors such as Apple TV+ and Disney+ debut in 2-4 weeks. The new challengers price their services at much lower points than Netflix. The room to increase price to recoup their investments faster is getting smaller. I do think a price hike will negatively affect Netflix.

Some may say: oh Amazon kept investing heavily in their early days as well and Netflix can be the same. They are not, as I wrote here. Their free cash flow continues to be in the red while Amazon was in the black for years.

The expensive bidding war for content may play into Netflix’s favor. Their huge subscriber base enables them to spread the cost much better than competitors, especially new ones that have to acquire subscribers from scratch. Hence, it can be argued that Netflix will be one of the only few standing after the dust settles. It does make sense to think about the streaming war’s future that way. As does it make sense to think that there is a possibility that the game Netflix is playing may not work out for them, given the intense competition, the decreased price inelasticity, the huge debt they have incurred and the continuous negative free cash flow.

I think that we will have more clues around the next earning call or two as we’ll see how Netflix will fare after the arrival of Apple TV+ and Disney+. Even then, we won’t know definitively who will win in the end. Fascinating times ahead.

Weekly readings

Weekly readings – 24th August 2019

by MQDuongLeave a Comment on Weekly readings – 24th August 2019

Spotify’s pitch to podcasters: valuable listener data

Netherlands’ Building Ages. How cool is this? It must have taken quite some time and effort to build this map.

OuiWork? The quick case for WeWork as an actually disruptive business

Apple Targets Apple TV+ Launch in November, Weighs $9.99 Price After Free Trial

Where Top US Banks Are Betting On Fintech

Manufacturers Want to Quit China for Vietnam. They’re Finding It Impossible

Apple’s New TV Strategy Might Just Work

MoviePass database exposes 161 million records. Much as I am grateful to MoviePass, perhaps it’s time for the company to be shut down

Starbucks, monetary superpower. Let me give you a notable quote to get an idea of what this article is about

Starbucks has around $1.6 billion in stored value card liabilities outstanding. This represents the sum of all physical gift cards held in customer’s wallets as well as the digital value of electronic balances held in the Starbucks Mobile App.* It amounts to ~6% of all of the company’s liabilities. 

This is a pretty incredible number. Stored value card liabilities are the money that you, oh loyal Starbucks customer, use to buy coffee. What you might not realize is that these balances  simultaneously function as a loan to Starbucks. Starbucks doesn’t pay any interest on balances held in the Starbucks app or gift cards. You, the loyal customer, are providing the company with free debt. 

Now bigger than eBay, Shopify sets its sights on Amazon

Inside India’s Messy Electric Vehicle Revolution